4 ways banks are experimenting in the metaverse

March 21, 2022 1:23 PM

A handful of banks are setting up shop in the metaverse in an effort to learn more about it and to reach the young gamers who use it.

The so-called “metaverse” is really multiple separate virtual reality environments, including Decentraland, The Sandbox and Somnium Space. Some primarily host video games. Others, like Decentraland, are online worlds where people create avatars that represent themselves and participate in real-life activities like buying a house and attending a wedding. Second Life, the virtual world Linden Lab developed in the early 2000s, was one of the first of these. At that time, a few banks set up branches there, to help customers manage their money while in the environment.

This time around, banks are setting up lobbies, games and methods of letting users buy and sell game tokens and turn them into cash.

“Currently we have a land grab by some banks experimenting with the metaverse, but this is no different from the virtual branches we saw pop up during the Second Life days, so nothing new in that respect,” said Brett King, futurist, Moven founder and host of the "Breaking Banks" radio show.

“The core of the metaverse isn’t virtual real estate but digital worlds with digital assets, environments, businesses and activities.”

A presence in the metaverse could help banks attract young customers and possibly create new products and business models.

“I think it's potentially a massive growth opportunity for financial services players,” said Lucia Uribe, an Oliver Wyman partner who specializes in financial services. “We're at the very early stage of an emerging market that could have quite significant growth over the coming years.”

Uribe also co-led a global consumer study by the Oliver Wyman Forum, a think tank of the consulting firm, that identified metaverse user trends. The research found that metaverse users skew younger, urban and male.

“If you have an end consumer who's gaming or exploring the metaverse, they come across you there and it reinforces that brand relationship,” Uribe said. Banks could also do product education, internal training or internal events in the metaverse, she noted.

Banks could build bridges between the online and offline worlds. Zelf, a U.S.-based challenger bank, is already working on this.

“Looking forward, there will be increased convergence between the online and offline worlds and development of virtual to physical payments and financing, potentially the emergence of new ownership and asset classes, as you think about things like real estate in the metaverse that potentially point toward new types of credits,” Uribe said. “You could envision virtual mortgages on metaverse real estate or rental agreements.”

Early-adopter banks are simply learning and connecting to others in virtual spaces.

“It's really for the purpose of mitigating the risk of being left behind,” Uribe said.

Scroll through to learn about projects banks are pursuing in the metaverse.

JPMorgan Chase puts Jamie Dimon and a tiger in a virtual room

The $2.6 trillion-asset New York bank has set up shop in Decentraland, a virtual world in which users can buy digital plots of land. According to Yahoo Finance, Decentraland has a monthly active user base of about 300,000 people and 18,000 daily users. It’s run by the Decentraland Foundation.

When your avatar walks into the Onyx by J.P. Morgan lounge in Decentraland, you find yourself in a room with an illuminated portrait of Jamie Dimon, a pacing tiger and a couple of wall-mounted displays. Clicking on one of the displays starts a video “demo” of how payments could be made in space using smart contracts. Another shows a timeline of the bank’s blockchain projects.

The virtual lounge was created by the same J.P. Morgan Payments team that put out a whitepaper last month about business opportunities in the metaverse. The virtual lounge and the paper are intended to help start conversations with clients. The tiger is a nod to 2022 being the Chinese Year of the Tiger.

HSBC buys land in The Sandbox

In mid-March, Animoca Brands, the Hong Kong-based developer of the gaming environment The Sandbox, said that HSBC will acquire a plot of virtual land in its environment. Companies typically use land in The Sandbox to host games and contests. The Sandbox has been downloaded 40 million times and has 1.2 million active monthly users, according to the company.

HSBC will use its plot to connect with sports, esports and gaming enthusiasts.

“The metaverse is how people will experience Web3, the next generation of the internet — using immersive technologies like augmented reality, virtual reality and extended reality,” said Suresh Balaji, chief marketing officer for Asia-Pacific at the $3 trillion-asset HSBC. “At HSBC, we see great potential to create new experiences through emerging platforms.”

The London-based bank will work with sports partners, brand ambassadors and Animoca Brands to co-create experiences that are educational, inclusive and accessible, Balaji said.

American Express files patents hinting at future metaverse plans

In early March, American Express filed seven trademark applications related to nonfungible tokens (NFTs) and the metaverse with the U.S. Patent Office.

One is for e-commerce software that lets consumers perform electronic business transactions in the metaverse. Another is for the “provision of an online marketplace for buyers and sellers of digital media, namely, non-fungible tokens.” A third is for assistance with electronic transfers of money and banking services in the metaverse.

“Amex is always monitoring emerging technologies to see how they could benefit our customers, and the metaverse is a space we’re following,” a spokeswoman said. “We have no plans to share at this time but are watching as this space evolves.”

Zelf builds a bridge from banking to gaming

The way Elliot Goykhman, founder and CEO of the Delaware-based challenger bank Zelf, sees it, the coronavirus pandemic got more people interested in virtual worlds as an escape from seclusion.

And they began spending more money in the metaverse.

“The story of 2021 is that people started to spend oftentimes more on the outfits and skins of their virtual characters than on their real-life selves,” Goykhman said. “I know very few people who would spend $4,000 on a pair of sneakers, but people do so in the metaverse.”

Zelf is building an embedded banking system for exchanging value from virtual worlds to the real world in conjunction with a bank account. It already offers embedded banking in messenger apps.

In a typical scenario, a 17-year-old boy might have $2,000 in tokens inside a video game, but needs $50 in real-world dollars for a date with his girlfriend. Zelf would hold the game tokens in escrow and provide the player with a payday loan. If the person couldn’t repay, Zelf would sell the game tokens on its marketplace to other players to compensate for the loss.